The Retirement Plan Solution: The Reinvention of Defined Contribution

Chapter 6. Save More

Not every worker participates in a defined contribution (DC) plan. And of those who do, some start late, some make inadequate contributions, and some who change jobs lose the opportunity to make their participation in the system continuous. In this chapter we discuss each of those four aspects of the DC system. In each case, we will describe the issue and quantify as best we can how big an impact it has. We will explain why it occurs. Lastly, we will describe the solutions that might be possible.

EMPLOYERS WITH NO PLAN

If society is looking to the DC system as the private sector's primary vehicle for retirement provision, then it is pretty obvious that there is a problem if employers do not offer a plan. But many do not.

In 2008 the Government Accountability Office of the U.S. Congress published a study on savings in DC plans, based on the 2004 Survey of Consumer Finances.^[45] It reported that:

• Sixty-two percent of workers were offered a retirement plan (either defined benefit [DB] or DC) by their employer. Of those offered a plan, 84 percent participated. Since DB participation is essentially 100 percent, the DC participation rate is clearly below 84 percent.

• Looking at DC alone, 36 percent of workers were enrolled in a DC plan with their current employer. But among the young, only 24 percent of workers aged 18 to 29 were enrolled in a DC plan with their current employer.

• Only 25 percent of workers in the lowest-income quartile were offered a DC plan, and only 8 ...